India revamped two key economic indicators: the index of industrial production (IIP) and the wholesale price index (WPI); to better reflect structural changes in the economy and improve quality of data. The factory output number rose sharply and inflation slowed dramatically using the new scale.
This is the seventh revision of the base year, which has now been changed to 2011-12 from 2004-05. Several items such as carrots, walnuts, natural gas have been added to the new WPI besides changes in weights assigned to the commodities. The new IIP series has added solar energy , hormonal preparations and gold to the basket of commodities that will be tracked while removing items such as gutka, flavoured milk, leather shoes and tooth powder to reflect changes in production. As per the new series, WPI stood at 5.3% and factory out put clocked 2.7% growth in March.
These changes to the indices not only align it with other measures but also bring them in line with global practices. For the first time, a high-level technical review committee has been set up to identify new products for inclusion and exclude obsolete and irrelevant items for both IIP and WPI on an ongoing basis.
The new WPI index excludes indirect taxes in line with the proposed roll out of the GST. This is because the impact of GST, expected to be rolled out July 1, will be felt on retail prices.
The growth in inflation as measured by the wholesale price index in 2016-17 was 1.7% as per the new base of 2011-12 against 3.7% with the 2004-05 base. Similarly, IIP showed a rise of 5% in the year 2016-17 with the updated base compared with 0.7% based on the old one.
The government attributed this jump to shifting the base year to a more recent period, an increase in the number of factories in the panel for reporting data and exclusion of closed units besides the inclusion of new items and exclusion of old ones.
Experts said the revision align the measures to other macroeconomic indicators.
India's wholesale price inflation eased to 3.85% in April from 5.3% in March, led by softening food prices as per the new measure. Radish, carrot, cucumber, bitter gourd, mosambi (sweet lime), pomegranate, jackfruit, walnut and natural gas have been added to the basket.
The basket of goods for WPI has been changed to include 199 new items, doing away with 146 and taking the total to 697.
In order to bring the index closer to the producer price index, in line with international practices, the revised system has excluded indirect tax from wholesale price index calculation.
The government has also launched a new WPI food index to monitor prices better. Based on the recommendations of a working group committee headed by the late Saumitra Chaudhuri, the new WPI index includes seven new fruits and nine new vegetables in the WPI basket of goods.
Factory output rose 2.7% in March compared with 1.9% growth in February, according to the new base.As per the old base, IIP declined 1.2% in February but rose 2.5% in March.
For calculation of IIP, items such as calculators, colour television set picture tubes, no longer economically significant, have been deleted.
The index has increased the item groups and will now capture `work in progress' for capital goods, and renewable energy data to improve the quality of industrial statistics.
It will also include hormonal preparations and surgical instruments.
A new infrastructure and construction goods category has been added to IIP to address the linkage of production with these sectors. Rubber insulated cables, one of the most volatile items of the basket, is now categorised under this. This has been done to ensure that the data better captures the changes in the economy.
However, volatility in the IIP may persist, given the nature of the input data.